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    Hal Katz
    Hal Katz

    Part 1 of the Series: Guide to closing a private equity transaction

    To increase the likelihood of ultimately closing a transaction with a private equity investor or buyer, the key is preparation.  Preparation is divided up into several steps.

    Motivations and Priorities

    First, before seeking a potential investor or buyer, the owners of the business should go through a semi-formal process to confirm the owners and key members of the business have shared, or at least compatible, motivations and priorities in a pursuing a potential transaction (e.g., capital for improving or growing the business, building a brand, creating value for a future exit, or cashing out). This will allow the business to focus on those investors/buyers with aligned expectations, and ultimately gain the required approval to close a transaction from the owners and key members of the business.

    Creating internal and external teams

    The next step in preparation is creating the right internal and external transaction teams. The internal team will consist of the primary decision makers and individuals who will be necessary to support the initial transaction process. This will include senior leadership and management, and support personnel who can access and collect transaction related information that for negotiating a transaction (e.g., the principles and key management).

    The external team will typically include an investment banker and lawyers who have experience with PE transactions, in the healthcare space specifically. Having an organized and experienced team will save money and minimize the risk of losing a transaction.

    Internal assessment

    Once the teams are in place, an internal assessment of the business should commence. Similar to when buying a house, this will be equivalent to an inspection process. And just like when selling a house, the seller should spend time getting the business ready for sale. This process will reduce the risk of spooking an investor/buyer with too many unresolved issues, or an unexpected business issue being used by the investor to negotiate more favorable terms, or pass on the transaction altogether. The internal inspection process should include:

    • Finding and updating corporate documents, such as operating agreements, bylaws, minutes and redemption agreements
    • Identifying material agreements, such as office leases, equipment leases, payor agreements, vendor agreements, employment agreements, billing and collection agreements
    • Conducting lien search to confirm any existing creditor liens, and removing expired or incorrect liens
    • Reviewing financial statements and tax returns for the last three years
    • Resolving any pending disputes that may exist (e.g., with payors, patients, vendors or employees)
    • Evaluating current compliance with applicable laws and payor agreements, and identifying and current compliance issues
    • Inventorying all licenses relied upon to do to business, and confirming all are current and accurate


    After the completion of the internal and any necessary clean-up, and the seller is ready to begin discussions with an interested investor/buyer, a non-disclosure agreement (NDA) should be put in place. The NDA should be a balanced agreement, and apply to both the seller and interest investor/buyer. To avoid having to review and revise multiple NDAs from interested parties, the seller should consider preparing a template NDA for all interested parties. The NDA should:

    • Accurately name the parties to the negotiations, and include their respective representatives
    • Define confidential information, and its return upon completion of negotiations
    • Set a reasonable period of non-disclosure following termination of negotiations
    • Include a non-solicitation requirement
    • Stipulate the seller’s location as the governing law and venue for enforcement of NDA

    Depending on the interested investor/buyer, there may be other terms to consider including. For example, if the potential investor/buyer is a current or soon to be competitor, specific language may be needed for describing how payor reimbursement rate information is shared.

    Next in the series will be a discussion of the purpose of a letter of intent, and what should be included.

    Other articles in the series:

    Part 2 - Guide to closing a private equity transaction: Negotiating the letter of intent
    Part 3 - Guide to closing a private equity transaction: Due diligence
    Part 4 - Guide to closing a private equity transaction: Healthcare regulatory issues
    Part 5 - Guide to closing a private equity transaction: Material terms to negotiate

    Additional Resources

    Hal Katz

    Written By

    Hal Katz

    Hal has focused his practice on the healthcare industry during the last 20 years, representing for-profit, nonprofit and governmental entities. He has been on the front line of healthcare evolution and innovation, witnessing firsthand successes and failures at both the industry and business levels.  

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